UK & Europe
A slide in oil prices added to opening losses for stock markets on Monday. The the oil and gas sector fell sharply, despite a landmark deal in the sector between General Electric (NYSE:GE) and Baker Hughes.
It wasn’t Halloween but the idea of a Trump Presidency that was spooking markets. Stocks in Europe were feeling the aftershock of US election jitters that struck US markets on Friday when the FBI opened up a new probe into Hillary Clinton’s emails.
The FTSE 100 finished its fifth month higher in a row, helped by a lower pound that has improved the outlook for earnings from its multinational listings. The benchmark UK equity index closed in the bottom half of its monthly range as political uncertainty at home and across the pond saw investors press the pause button.
On Monday it was the shares of oil firms and retailers that were the biggest drag to the FTSE 100. WPP (LON:WPP) shares were on top after the advertising giant reported rising revenues on the back of a weaker Sterling. Retailer Next was the biggest faller ahead of its results this week.
WPP shares rose over 4% after the world’s biggest marketing company reported revenues up 23.4% in the last quarter. Martin Sorrell’s firm had a strong performance in Western Europe in the US, though growth slowed slightly in the UK, the Middle East and Africa. WPP is projecting modest earnings growth based on advertising as a percentage GDP remaining unchanged whilst global growth remains lacklustre.
US
US stocks were flat in early trading after pulling back from M&A-induced gains as investors looked for further details on the latest FBI probe into Hillary Clinton’s emails.
The combination of General Electric’s oil and gas business and Baker Hughes is the latest in a series of mega mergers this month. It’s almost as if companies are trying to push deals through before what could be a more hostile next administration.
The results of the FBI probe are unlikely to be known for weeks or even months so will be a source of uncertainty that could taint Hillary Clinton’s initial time in the Oval Office, were she to be elected. Huma Abedin, an aide of Hillary Clinton and thousands of those emails were potentially used on Hillary Clinton’s private email server. The new finding could reveal many of the emails deleted by Hillary Clinton.
The size of the reaction in US equity indices on Friday to the FBI announcement goes to show how much could hinge on the Presidential election result. The sharp down move in reaction to news that boosts Trump’s chances is a peak preview of what to expect if he takes the White House.
FX
FX markets were relatively quiet on Monday ahead of a busy week for central banks. The US dollar was higher across the G10 universe of currencies amid mixed economic data. Personal spending rose more than expected in September, while the rise in personal income missed estimates.
It was the Chicago PMI that drew the most attention, more specifically a rise in prices paid to near a two-year high. The overall indicator saw a surprise slump to 50.6, a four month low. The combination of rising prices and a deteriorating growth outlook could weigh on the revisions to third quarter US GDP.
Commodities
A stronger dollar and unravelling confidence in the ability of OPEC to build a consensus on cutting oil output saw oil prices drop sharply on Monday. Brent crude dropped below $49 per barrel for the first time since September. On Monday Iraq published unusually detailed production details in order to demonstrate it is producing more.
Iraq wants to avoid being placed under a quota well below its current production details. Iraq revealing it probably produces more than the market appreciates highlights the difficult in measuring and enforcing any output cuts from OPEC member states.
The oil market has been under pressure ever since Iraq said it expects to be exempt from the OPEC output cut. Not helping matters, Russia appears to be leaning more towards freezing its own output rather than cutting alongside OPEC.
After topping $1280 per oz on Friday, the price of gold was little changed on Monday. Speculators added to 14,547 contracts to net long gold options and futures positions in the week ending October 25 according to CFTC data. This is the first rise in four weeks. There are signs gold is being accumulated as a hedge before the US election. However, should Hillary Clinton win, as expected, those hedges could unwind pretty quickly. The Fed left on course to raise interest rates amid a more certain political future under Hillary Clinton as President would not be a favourable environment for gold.
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